Category: Social Money

MD: Reply to Hadrien Croubois article “About Trust and Agents Incentives”
HC: Hadrien Croubois
https://hadriencroubois.com
Oct 11, 2017PoCo Series #1 — About Trust and Agents Incentives
Who am I?
My name is Hadrien Croubois and I am a Ph.D. student at ENS de Lyon. My research as a Ph.D. student focuses on middleware design for the management of shared Cloud-based scientific-computing platforms; and more particularly how to optimise them for workflow execution.

MD: Why in the world should “cloud-based” systems even exist?

HC: However, my interests are much broader and include HPC, physics, and biology large-scale simulations, image rendering, machine learning and of course cryptography and blockchain technologies.

Since September 2017 I am also a scientific consultant for iExec. I met Gilles at ENS de Lyon and it was the perfect opportunity for me to experience working in a team designing innovative solutions.

My role as a member of this team is to study existing work from the research community and provide insight into the design of a proof-of-contribution protocol for iExec. This article is by no means a solution to this complex issue. It is rather an overview of our understanding and ideas regarding this issue.
Why iExec needs Proof-of-Contribution?

The iExec platform provides a network where application provider, workers, and users can gather and work together. Trust between these agents is to be achieved through the use of blockchain technology (Nakamoto consensus) and cryptography.

MD: COIK (Clear Only If Known). The key here is how Nakamoto establishes consensus. You really can’t know from reading the white paper that got all this started. In short, it comes down to “democracy” … i.e majority rules. In this case, over 1/2 the population. Anyone who has looked into democracy knows it cannot work with more than 50 parties involved.

HC: Our infrastructure is divided into 3 agents:

Application providers: They provide applications, which are seen as services.

MD: How do “application providers” originate?

HC: These applications can be called by the users with specific parameters. Application providers are paid for each execution of their application.

MD: Who pays the application providers. Almost the entire Android community of applications are provided at no cost whatever.

HC: The applications rely on the iExec smart contract to manage communications between the ethereum blockchain and the off-chain computing platform.

MD: COIK … what is a “smart” contract? Is it transparent? Who can see it? Who cannot?

HC: Users: They are the clients of the infrastructure. They pay to obtains results computed by the application.

MD: Seems like a non-competitive model. Take the internet itself. It is an infrastructure with no clients and no providers … or better yet, where everyone is both a client and provider. What problem is being solved here?

HC: Workers: They are computing entities that provide computing resources. These resources are used for the off-chain execution of the applications. Workers are paid based on their contribution to the computation of the applications.

MD: Again COIK. Why would workers be just “computing resources?” Seems like (reading way between the lines here) anyone being a source, or an opposition to a source, of information is a worker.

HC: The goal of the Proof-of-Contribution protocol is to achieve trust between the different agents, and more particularly between users and workers, in order for the users to be able to rely on the results computed by an external actor whose incentive is, at best, based on income.

MD: I once sat in a meeting where they made the rule that you had to say 5 nice things before you could say 1 thing critical. Want to guess how that meeting went?

HC: In particular, we want to achieve protection against Byzantine workers (who could provide bad results to penalize users) and users (who could argue against legitimate work performed by legitimate workers).

MD: Right. In sports we call those referees. But in real sports, the contestants referee themselves. We lose it when we establish rules and laws. What we really have is principles … and very few of them, the “golden principle” being paramount. Rules and laws just dilute principles. They essentially say, by defining this particular instance of the application of the principle, we declare all other applications unlawful … and thus have to define all particular instances in law after that … and thus totally lose sight of the principle. It’s called “gaming the system”.

HC: First approach: the result contribution validation scheme

Validation of the work performed by the worker can be achieved in two different ways:

Majority voting on the (hash of the) result.

MD: Like the long list of scientists who “vote” that global warming is real … when almost none of them are meteorologists or have the slightest clue of things physical?

HC: This helps mitigate against Byzantine workers but at the price of computing power overhead. Validating the result for a specific execution requires multiple workers to compute it, thus multiplying the execution cost by a factor m. In desktop grid or volunteer computing platforms (BOINC), this factor m can range from 3 all the way to 20~50. With more replication come more confidence in the result, but that also means that the reward is shared among more worker, reducing the incentive to the workers to contribute.

MD: Have you thought of a hierarchical structure to get around the fact that democracy doesn’t work with more than 50 people involved? The solution is to have each group of 50 solving the problems they can solve. They select a representative for the next lower group of 50 … and so on until you get to the final group of 50. Nothing should make it down to the bottom group of 50 and if it does, that group should come to a unanimous conclusion (establishing the principle) … not a majority conclusion. With this structure you can “democratically” represent the entire population on earth in just 6 layers of 50 person groups.

HC: Relying on a court system to solve conflicts between users and workers (TrueBit). This solution is however complicated both in terms of efforts from the users, who have to check every single result and from the platform which has to implement complex arbitration mechanisms. While this method does not require the work to be executed many times, the arbitration mechanism might call for heavy instrumentation of the execution in order for the worker to provide elements of proof if their execution is challenged.

MD: Better to make users and workers show where what they are doing “is” principled when challenged. Then let a small democratic group judge their “principled” defense … i.e. would they really want to be treated the way they are treating?

HC: A significant contribution was published by Luis Sarmenta (2002. Sabotage-tolerance mechanisms for volunteer computing systems. Future Generation Computer Systems, 18(4), 561–572). The proposed approach is based on majority voting but rather than relying on a fixed m factor, it dynamically “decides” how many contributions are necessary to achieve consensus (within a specific confidence level). The replication level is therefore dynamic and automatically adapted, during execution, by the scheduler. This helps to achieve fast consensus when possible and to solve any conflicts.

MD: Did it ever occur to you that if we had computers before we had internal combustion engines and the subsequent invention of governors that we couldn’t even mow our lawns today? The mower would become too complicated to use … and enormously unreliable … in spite of the enormous computing power that is thrown at the problem.

HC: Fig 3 from Sarmenta’s paper, describing how workers contribute to different jobs by voting on the result.

This approach relies on worker reputation to limit the potential impact of Byzantine agents and to achieve consensus.

MD: Did you read the global warming emails. You see how workers reputations are easily co-opted … how the best of systems are easily gamed by gangsters.

HC: Yet this approach is designed for desktop grid infrastructures, where money is out of the equation. Using the financial incentive of the different actors, we can modify and improve their approach to better fit our context:

Each worker retribution for computing a task can be indexed on their impact on the consensus for this task. In addition, having a good reputation helps to achieve fast consensus with fewer agents (meaning a bigger share for each agent). This gives the workers a financial incentive to act well and have their reputation go up.

MD: Do you think Digital Research would have won out over the deficient Microsoft if your rules were in place? Do you think Borland would still exist?

HC: Workers are required to commit a security deposit (stake) which is seized in case of bad behavior. This gives the worker an additional financial incentive to behave correctly.

MD: And the process for “seizure” is???

HC: The main drawback of Sarmenta’s article is the assumption that Byzantine workers are not working together and do not coordinate their attacks. While this assumption does not hold in our context, we believe we can still achieve it by selecting workers randomly among the worker pool. Therefore Byzantine workers controlled by a single entity should statistically be dispatched on many different tasks and should therefore not be able to overtake the vote for a specific task.

MD: I created a computer language (see WithGLEE.com). As I was creating it I was basking in the environment where “I” made all the decisions. I had no inertia to keep me from abandoning a bad tact, reversing it, and taking another tact. In the end I was delighted with the result. But all the time, the camel that is the collection of internet process (e.g. Java, JavaScript, Python, … etc.) won out, because though they were all deficient as horses, they had a constituency as a camel (a horse designed by committee). Python is the most obvious. You don’t use visual structure as a programming element.

While Sarmenta’s work is interesting, a few modifications are required to work in our context. In this section, we discuss preliminary ideas on how we believe this work could be adapted to iExec needs. Our idea is to orchestrate the exchanges between the users and the workers as described below.

MD: You better find a different word than “orchestrate” if you want to establish trust. Global warming is a perfect example of “orchestration”. Climate change is a perfect example of “orchestration soiling its own nest and having to change its feathers”.

HC: In addition to the users and workers, we have an additional component: the scheduler. Schedulers manage pools of worker and act as middlemen between the blockchain (listening to the iExec smart-contract) and the workers. A scheduler can, in fact, be composed of multiple programs which complementary features but we will here consider it as a single “virtual” entity.

MD: Right. Always leave openings for large numbers of regulators and bureaucrats. Did it ever occur to you that a full 3/4ths of the fruits of your labor go to government? Really bright people, when given the task of maintaining a broom in upright position, would create an enormously complicated platform using all kinds of sensors and PID controllers. Any maid would just suspend it from the top and rely on it’s naturally stable tendencies.

HC: One should notice that our discussion here does not deal with the scheduling algorithm itself. In a scheduler, the scheduling algorithm handles the logic responsible for the placement of jobs and handles execution errors. The scheduler is free to use any scheduling algorithm it desires as long as it can deal with step 3 and 5 of the following protocol.

MD: Ah yes … and to change it dynamically and often to suit conflicting whims. Ask Facebook how that’s working as they bend to demands to filter out fake news … when all they really are is a medium of communication and the content should be none of their business or responsibility. The gangsters are trying to do the same thing to the internet. Their ox is being gored badly … and what could be better than to gore their ox out of existence?

HC: Workers register themselves to a scheduler.

MD: I’m not going to comment further. This is a perfect example of the condition: “losing sight of our objective we redouble our efforts”. It’s also an example of “if I am a hammer, everything looks like a nail”. It’s also an example of “the first and best solution to every issue is government and regulation”.
Read on at your own risk!

HC: Users submit tasks to scheduler managing the work pool they chose.
Workers ask the scheduler for work to execute. The scheduler gives them tasks to be executed. Note: If we are coming from step 5 we should not ask a worker to compute a task it has already contributed to.
The worker computes the result (A) of the task. In order for this result to be validated, the platform has to achieve a consensus on this result. This is achieved through Sarmenta’s voting. In order to contribute to this consensus, the worker commits the result to the scheduler:
a. Generate and memorize (but not publish) a random value r (private disposable personal identifier).
b. Submit a transaction (contribution) with :
i. hash(A) → used to vote on an answer;
ii. hash(r) → used as a public disposable personal identifier;
iii. hash(A+r) → used as proof of knowledge of A;
iv. commitment fund (with a minimum value) → incentive to only commit good results (see later). A higher commitment fund increases the Cr (cf Sarmenta, L.F.) and thus increases the potential returns (see later);
v. A tamper-proof timestamp → Used by the worker to prove its contribution and claim its reward.
With each new vote (contribution) by the workers, the scheduler checks if an answer (hash(A)) achieves the expected likelihood threshold using Sarmenta’s voting.
a. If we do not have a consensus, the scheduler will ask more nodes to compute the same task (dynamic replication) and contribute to the consensus → go back to 3;
b. If we have a consensus continue to 6.
An answer has been selected. The scheduler can now:
a. Publish the elected hash(A). At this point no new contribution is possible.
b. Ask the winning workers for A and r. Having a value of r which matched a correct transaction dating from before the election result is a proof of contribution. At this point A can be published by any worker. The value for r shows that a worker knew the answer they voted for before the results of the election. That way they cannot claim a contribution by just submitting a transaction with the hash(A) published by other voters.
c. Check the correctness of each worker contribution.
d. Put the deposit fund (stake) of all workers who voted for another answer in the reward kitty.
e. Distribute the reward kitty (users payment + deposit fund from wrong workers) among the winning workers proportionally to their contribution (Cr value computed from the reputation and the funds committed to the vote). The scheduler may take a commission for its work.
f. Increase the reputation of winners, decrease (reset) the reputation of losers.
g. Send the, now validated, answer to the user.

Equations used by Sarmenta to compute the credibility of a result from the credibility of the voters.
Trust level, worker pools, and billing policy

Sarmenta’s voting helps to achieve the given level of confidence using worker reputation and dynamic replication. This confidence level is defined by a value ε which describes the acceptable error margin. Results should only be returned if a confidence level higher than 1-ε is achieved. This value is a balance between cost and trust. A lower ε means more confidence in the result, but also requires more reputation/contributions to achieve consensus, and therefore more work to be performed. While this value could be defined by the user for each task, they might not know how to set it and it might cause billing issues.

We believe this value should be fixed for a worker pool. Therefore the billing policy could be defined for a worker pool depending on the performance of the workers (speed) and the ε value used by this worker pool scheduler (level of confidence). The user would then be free to choose between worker pools. Some worker pools might only contain large nodes running technology like Intel SGX to achieve fast result with low replication. Other worker pools could contain (slower) desktop computers and have their consensus settings adapted to this context.

With consensus managed by the scheduler and financial opportunities for late voters provided by the security deposit of opposing voters, the users should not worry about anything. Users pay for a task to be executed on a pool of worker, regardless of the number of workers that end up involved in the consensus. If consensus is fast and easy the payment of the user is enough to retribute the few workers who took part in the vote. If the consensus is hard and requires a lot of contributions, the workers are retributed using the security deposit of losing voters. This gives the workers a financial incentive to contribute to a consensus with many voters without requiring the user to pay more.

In the current version of this work, the protocol is such as the user has no part in the consensus. Payments are done when submitting the task and no stake is required. Results are public and guaranteed by the consensus. Users can therefore not discuss a result.
Assumptions and agents incentives

We believe the protocol described previously to be secure providing a few assumptions are met :

The first strong assumption is the ability of workers to publish their transaction (contribution) in a public manner. The medium used to publish those contributions has to provide a secure way for anyone to verify that contribution have been done prior to the election results. This can simply be achieved using current blockchain technology such as ethereum smart contracts. Still, that should not prevent us from considering other approaches like DHT (distributed hash tables).
The second assumption is that the voting algorithm will, in fact, give good results. This assumption is equivalent to saying that 51% of the reputation (of a worker pool) is not controlled by a single malicious user. We believe this is not a flaw of the protocol for two reasons:
a. All voting based systems, including the Nakamoto protocol, are subject to such attacks. This flaw is not in the design of the protocol.
b. There are strong (financial) penalties for bad actions on the platform and spot checking can be enforced to give more power to the scheduler and help them deal with bad actors. It is a matter of balance between the scheduler and the workers to enable spot-checking or not. We can imagine multiple worker pools, run by different independent schedulers which specific policy. Ultimately those pools could compete to attract the users (with elements such as the achieved quality of results and pricing).

Finally, we believe that both scheduler and workers will be inclined to work correctly in order to provide a good service to the users and benefit from the iExec ecosystem. Having 51% of the reputation controlled by actors wanting to do things right and benefit from it should not be an issue.

Incentives for the different agents are as follows

Users: They are requesting work to be done, and money in a healthy system would only come from them. User incentive to use the platform is to obtain good results for a low price. This will lead them to create a competition between worker pools. Their ability to chose or boycott worker pools create an incentive for workers and schedulers to work together in order to achieve the best service possible and attract users.
Workers: Their incentive is to gain as much money as possible for their work. To maximize their gain, they should maximize their contribution. Contribution can be obtained by having a good history (reputation) and/or by committing more funds when submitting a contribution. Giving bad results would make them lose both funds and reputation, which they should avoid at all cost.
a. New actors, with no history, start with a low reputation, meaning they will weigh less in the vote. Their chance to overtake a vote against trusted workers is small, and it would be a waste of fund from an attacker.
b. An old actor with a good history can win a lot by using their reputation to perform computations. As they are trusted, fewer contributions are needed to settle a vote and the reward kitty is therefore shared among fewer agents. On the other hand, by submitting bad results they risk losing all their reputation (and the money they committed with the contribution). Reputation does not guarantee them to win votes and spot-checking can help to detect bad contributors with high reputation.
Scheduler: Their incentive is to gain money by helping coordinate the platform. They make money through:
a. Commissions on all transactions;
b. Unclaimed rewards: if a worker doesn’t claim the reward after a contribution the corresponding fund would be kept by the scheduler.

In order to make money, the scheduler requires users to submit jobs and workers to register in its worker pool. This gives him the incentive to manage the worker pool correctly and grow strong.
Public schedulers for a fully decentralized platform

One of the key elements that could ultimately help a scheduler getting bigger and attracting more workers and users is to be open about its decisions. We believe that a scheduler could rely on a blockchain mechanism to orchestrate the protocol described above. In fact, this protocol is designed so that every message can, and should, be public. Security is achieved using cryptography. In particular, the use of a blockchain solves the issue of proving a contribution existence (presence on the blockchain) and validity (precedence to the vote results).

The main issue that still has to be solved is the worker designations. At step 3, the scheduler submits the task to specific workers. This is important for two reasons:

We don’t want workers to race. This would favor fast nodes and one could attack the voting system by coordinating many fast nodes to take over the vote before other nodes can contribute.

We don’t want malicious nodes to take over some votes. By randomly assigning workers to jobs we distribute malicious nodes amongst many votes where they would not be able to take over and where their best play is to provide good results and benefit from the platform working correctly.

Such a mechanism requires a source of randomness which any observers of the blockchain can agree on. This problem is beyond the scope of this post. Having such a source of entropy could help the scheduler designate workers using a random yet verifiable algorithm. The data required for verification would be public. The only change required to the protocol would be that a valid contribution from a worker would require a proof that the worker was designated by a scheduler.

MD: It has been suggested that we at MD study Nash’s “ideal money” as an assignment (presumably to see it disproves our case) … by someone who won’t admit what we describe here is indisputable … or even give evidence they have even read the less than 500 words that present the principles of “real” money. As usual the assignment comes from those who resort to just handing out reading assignments … rather than reading our simple 500 words. This one is of particular interest because it claims “ideal money”. The “proper” MOE process described here at MD maintains the only “real” money imaginable … so it “has” to be as ideal as anything out there or proposed to be out there:

Ideal money is a theoretical notion promulgated by John Nash (Nobel Laureate in Economics), to stabilize international currencies. It is a solution to the Triffin dilemma which is generally about the conflict of economic interests between the short-term domestic and long-term international objectives when a currency used in a country is also a world reserve currency in the meantime.

MD: “To stabilize international currencies”? Tilt!!! Real money is an inherently and perfectly stable process. It has the automatic negative feedback mechanism of immediately mopping up defaults with interest collections of like amount. Now, with a statement like that first thing out of the chute, we here at MD know its silly to read further. But we’ve been given the assignment. We trudge on.

“Triffin dilemma”? Conflict of economic interests? A “proper” MOE process has no sensitivities to such things at all. There is no difference between short term and long term. The time value of money is provably 1.0000. When a proper MOE process exists anywhere, there is no such thing as a world reserve currency. “All” monies either come from a proper process or they are competed out of existence in an instant. Thus all moneys exchange at a constant rate … 1.000 if denominated in HULs (Hours of Unskilled Labor). And no “real” money requires “reserves” of any kind whatever!

Introduction

How does the idea of Ideal Money appear

“Money can be recognized as a technological development comparable to the wheel and of similar antiquity. Among the more recent developments in the technology that facilitates transfers of utility (in the sense of game theory) are systems like those of EZ Pass, by means of which vehicles traversing toll bridges or toll highways can pay their toll fees without stopping for the attention of human personnel manning the toll booths. In this lecture, I present remarks about the history of monetary systems and about issues of comparative quality or merit , along with a specific proposal about how a system or systems of ‘ideal money’might be established and employed.”[1]

MD: He describes a transfer system. The real money process is insensitive to the myriad of transfer systems employed in the money’s circulation. The process itself is only interested in its media’s creation and destruction and prevention of “all” leaks. He talks of a technological development. Exotic transfer systems are not it. There is nothing technical in addition and subtraction. That’s just simple accounting. I’m going to ignore all his noise about history. I’m just going to look for his solution to all the historical failings. We here at MD already know the best … and yet untried solution.

Main value standard of ideal money

Ideal money is working in the theory similar to the gold standard, but it is generally based on a Nonpolitical Value Standard. “A possible nonpolitical basis for a value standard that could be used for money would be a good industrial consumption price index(ICPI) statistic. This statistic could be calculated from the international price of commodities such as copper, silver, tungsten, and so forth that are used in industrial activities.”[1] John Nash said in his lecture.

MD: Tilt!!! All money is a perception held by two traders at an instant in time. One has money. The other has an object they will trade for money. In the negotiation step (1) of a trade, they decide how much money is involved. In all our illustrations our money will be measured in units of HULs (Hours of Unskilled Labor). A HUL has traded for the same size hole in the ground for all time … and is expected to do so in all future time. There is no “standard” … .political or otherwise. If the trade is made using existing money, the trade is complete for both traders. Promise to deliver (2) and Delivery (3) happen simultaneously on-the-spot. That trade is done. It has no impact on any other trade in the entire trading environment. It is just between those two traders. While the trade “uses” money, it doesn’t “create” money.

Money is “created” when one trader promises to do the trade over time and space. And we have all done that. We have bought a house, a car, a washing machine, or a steak dinner by creating money and then returning it a little bit at a time. Our trading promise is certified, the person with the house, the car, the washing machine, or the steak gets money (which we created on the spot). We then go about working to return that money and destroy it as we promised to do. If we are responsible traders (i.e. we don’t default), we pay no interest. If we have a propensity to default, we pay interest actuarially based on that weakness.

So Nash need not make this more complicated than it has to be. We can ignore references to anything “political” for example.

Why gold can not be an ideal money

MD: Not only can gold not be “ideal” money. It can’t be money at all. Anyone holding gold is doing just that … holding gold. They’re no more holding money than someone holding a ribeye steak.

The gold does not reach the standard of ideal money, despite its merits. The main problem is because the silver and gold do not have a constant value all the time.

MD: One gold star for Nash. Real money guarantees perpetual perfect balance between supply and demand for the money itself.

“To the undiscerning minds of the mass of men a pound sterling of gold, a silver five-franc piece, or a paper dollar, represents always a definite unit.

MD: So does a pound of ribeye steak. The pound is the unit … what it is a pound of can play no role at all. We choose the HUL as the best candidate for unit. It is related to time, which is unvarying, and what can be delivered in that time … which is relatively unvarying. Who knows how big a hole an ounce of gold traded for 100 years ago? Most don’t even know what it trades for today. But everyone can put a spade in their hand and in one hour make a hole that is one HUL in size. And they can know that their hole, for all intents and purposes, is the same size hole a HUL would have produced 100 or 5,000 years ago. We don’t need to search the Dead Sea Scrolls for proof.

It has not escaped attention, however, that a given amount of money buys much less at one time than another.”[2]

MD: May have to take back Nash’s gold star. A given amount of “real” money will always trade for the same size hole in the ground … always! It may trade for a different size car or different size ribeye steak or a different number of gold ounces … but that’s because of the supply/demand relation of those things themselves. The supply/demand for the money itself is perpetually perfect and plays no role whatever in the pricing.

in other words, people are used to measuring the value of goods by money, but due to some reasons the value of money itself changes, which causes the value of silver or gold changes. We can’t tell the constant value of the metal, and the fixed mind-sets can not easily be changed.

MD: What he says is only true of an “improper” MOE process like that run by the Fed and every other central bank which ever existed. if everyone does the same thing wrong, that is only one thing being done wrong. People thinking in HULs will never have this problem. Thinking in dollars, a HUL was $1.50 when I was one. It is about $8.00 for those who are HULs today. In both cases, it trades for the same size hole in the ground.

Related factors mentioned in Nash’s lecture

Welfare Economics

“A related topic is that of the considerations to be given by society and the national state to ‘social equity’ and the general ‘economic welfare’.

MD: But we at MD know that (welfare) has nothing whatever to do with money. So we should be able to skip this whole topic … but of course we can’t because we’ve been given this study assignment.

Here the key viewpoint is methodological, as we see it. How should society and the state authorities seek to improve economic welfare generally and what should be done at times of abnormal economic difficulties or ‘depression’?

MD: I don’t know and don’t care … as long as they don’t try to do it by manipulating the MOE process.

We can’t go into it all, but we feel that actions which are clearly understandable as designed for the purpose of achieving a ‘social welfare’ result are best.

MD: Best for whom? “real” money is not concerned. People can “use” it to do the things they feel are good. They can even “create” it to do so … as long as they also return and destroy as they promise to do. But they absolutely cannot “counterfeit” it to do the good things they want to do. That results in bad things for others … and a “proper” MOE process cares nothing about good or bad. It just cares about strict adherence to the process, thereby achieving the predicted and desired result … with zero outside meddling.

And in particular, programs of unemployment compensation seem to be comparatively well structured so that they can operate in proportion to the need.”[3]

MD: Unemployment compensation is no different than broken car compensation. If you can’t cover the risk through self insurance, you better be buying insurance. Regardless, that is no concern of a “proper” MOE process. Nash, this is oh so easy! Are you being paid to give these lectures?

Generally, the social welfare is what we always expect to be improved, and if there is really an ideal money, the whole economy would be influenced, including the social welfare.

MD: Why say the ideal money should do it? Why not say the ideal drug should do it. Or the ideal bullet should do it? “Social welfare” is not the business of money. Trading over time and space is the business of money.

MD: You gotta love it when they throw in game theory. Can string theory be far behind? How about global warming?

The concept of utility generally appears in the field of economics but it can be connected with the game theory in mathematics. In the game theory of economics, “utility” is a very important and essential factor. In the book (on game theory and economic behavior) written by the mathematician John von Neumann and the economist Oskar Morgenstern, a utility function is proved, which can be used to put the individual’s preference on the interval scale, and the utility is always preferred to be maximized. (More details can be found in Von Neumann–Morgenstern utility theorem.)

MD: And this is the exact same kind of nonsense Mises spends most of his really boring words on. When it comes to money, why traders make the trades they do is completely irrelevant. We see time and time again “buyers remorse”. It can happen in a day. Or it can happen over several years (e.g. in the case of a boat purchase … two days of glee, the day they buy it and the day they sell it … other than that, it’s just a hole in the water into which they throw money). That’s all irrelevant to the subject of money. But we have our assignment to study this nonsense!

In John Nash’s lecture about ideal money, he gave the opinion that we can through observing the changing relationship between the money and the utility transfer to see “how the ‘quality’ of a money standard can strongly affect the areas of the economy involving financing with longer-term credits.

MD: With a “proper” MOE process, quality is in the transparency and the efficacy of the process. The quality of the governor on a diesel engine is more complicated than that … its parts can break. The MOE process is either operating objectively as dictated … or it is not. Only in the former case does it have quality of any kind … and that quality is of the perfect kind.

And also, we can see that money itself is a sort of ‘utility’, using the word in another sense, comparable to supplies of water, electric energy or telecommunications.

MD: Absolute nonsense. It is never proper to think of money “supply”. A proper MOE process has media is perpetual free supply. There is always exactly as much there as is needed … no more … no less. Nash … no gold stars for you!

And then, if we think about it, money may become as comparable to the quality of some ‘public utility’like the supply of electric energy or of water.”[3] The game theory of economics is a good way to check whether the quality of a money is ideal or not.

MD: The way to check the quality of money is by observing its universal acceptance in use … and observing its trait (built in) of perpetual zero inflation of the money itself. The latter will enable and result in the former.

“The thinking of J. M. Keynes was actually multidimensional and consequently there are quite different varieties of persons at the present time who follow, in one way or another, some of the thinking of Keynes.

MD: “Multidimensional”? As in wishy washy? … yep … as in wishy washy.

A very famous saying of Keynes was ‘…in the long run we will all be dead…’”[3]Keynesian economics gives the opinion: in the short run, the change in economic output has a strongly relationship with the change in aggregate demand, the output is always affected by the demand.

MD: How about this from us here at MD: In the long run, inflation of real money will be zero; and in the short run inflation of real money will be zero. It’s more true than what Keynes said … some people die before the long run.

And look what they’re talking about: “aggregate demand”. Money doesn’t care about demand. It is in free supply. There is always in circulation the exact amount that is needed … or some trader is creating it as we speak.

If there is an ideal money which can be stable in a very long period, we do not really need to worry about lots of problems in the long run.

MD: Real money is perfectly stable … perpetually … as is a HUL and the size hole it trades for. It never worries about any problems … long run or short. It perpetually mitigates defaults experienced with interest collections of like amount and this is a stabilizing negative feedback loop.

Asymptotically ideal money

MD: OH PLEASE!!!!!

Main idea

Asymptotically ideal money is the currency close to but still not ideal money. In John Nash’s lecture, “Ideal Money and Asymptotically Ideal Money” focused on” the connection between fluctuation in inflation and exchange rates and the perceived long-term value of money”, he mentioned that: “‘Good money’ is money that is expected to maintain its value over time. ‘Bad money’ is expected to lose value over time, as under conditions of inflation.

MD: So money from a “proper” MOE process (i.e. real money) is “good money”. It (the process) guarantees it (the media) will hold its value in HULs over all time everywhere. It cannot be made to do otherwise without violating the process … at which point it is no longer “the process” … it is no longer “real” money.

The policy of inflation targeting, whereby central banks set monetary policy with the objective of stabilizing inflation at a particular rate, leads in the long run to what Nash called ‘asymptotically ideal money’ – currency that, while not achieving perfect stability, becomes more stable over time.”[4] That means if a currency has shown a trend to be more stable，it could become an asymptotically ideal money or even the ideal money in the future.

MD: A “proper” MOE process is subject to no such manipulation. Thus it can only produce “ideal” results. But the results are only ideal for the traders. They are far from ideal for the money changers or the governments they institute for their protection and force in applying their scam. And they are not ideal results for those in the business of finance. Their cherished and worshiped expression (1+i)^n from which they claim the time value of money … well, it always produces 1.000 … i.e. “real” money has zero time value. So those in the scam of finance need to find other work.

Euro

Currencies may become (asymptotically) ideal money

John Nash mentioned in his lecture that Euro might become an ideal money in the future, because Euro is used in a large range of places and has a good stability.

MD: We here at MD wished they talked to us when they created the Euro. We could have told them exactly how to do it to make it perfect “real” money (for traders that is). But the Euro was created by money changers to gain control over lots of countries at the same time. It is an open scam … and BREXIT is saying, we’re out … we want to run our own scam. Note, the Euro scam, like our own Constitution scam has no buy/sell agreement.

It is the currency used by the Institutions of the European Union and is the official currency of the eurozone which consists of 18 of the 28 member states of the European Union. In general, Euro has a macroeconomic stability, people in Europe owning large amounts of euros are “served by high stability and low inflation.” Moreover, in March 2014, Euro was commented as “an island of stability” by the head of the European Central Bank.[5]

MD: Every one of those individual entities in the European Union could have instituted their own “proper” MOE process. Ideally, they all would have adopted the HUL as the logical choice for unit of measure. If they had done that, all their money would be freely exchanged with a constant exchange rate … that being 1.000. Had they done that, there would have been no reason to “unionize”. And there wouldn’t be a European Central Bank; or 18 central banks; or 28 central banks. there would be “no central banks”. Just certified certifiers with transparent operations employing a “proper” MOE process. What’s not to love about the simple and the obvious?

MD: Here at Money Delusions we know that money is not a “social tool”. Ithaca Hours and Baltimore BNotes are obvious instances of social money … that just plain doesn’t work. Every attempt to use it as such will be counterproductive. It is unfair to all concerned … especially traders. It enables interlopers to manipulate economies and to favor one class of trader over another.

With that in mind, let’s see what delusions this article contains and observe and predict the impact.

One of America’s fastest-growing loan types was designed to help homeowners make eco-friendly upgrades.

MD: Why would it be so fast growing? Offer these traders zero interest loans in a zero inflation environment and they will love you for it. This is just social manipulation through money … money “creation” in this instance. It is banished from any proper MOE process … through plain old common sense. We have to say “old” because there doesn’t seem to be any common sense in these newer times.

Property Assessed Clean Energy, or PACE, loans are issued by private companies, but the balances are attached to homeowners’ property tax bills.

MD: What does it mean to attach a balance to a property tax bill? Using taxes to manipulate the economy is also a no-no … unfair especially to traders.

Loan defaults in a popular program meant to finance energy-saving home upgrades have increased substantially, despite lenders’ claims that few borrowers have missed payments.

MD: If money creators … i.e. traders making trading promises spanning time and space (and borrowing is just the money changer term to mischaracterize what is really going on) are not missing payments, they are obviously “not” defaulting!

The small, high-interest-rate loans were made as part of the Property Assessed Clean Energy program, or PACE, a nationwide initiative designed to help people afford solar panels, energy-efficient air-conditioners and other “green” appliances. PACE loans are among the fastest-growing types of loans in the U.S.

MD: Small loans? High interest loans? What’s up with that!!! In these overwhelming corrupt times, it appears traders will do virtually anything to escape the money creation controls of the money changers … even when they play right into the money changers hands as described here.

Private lenders in the PACE program have told Wall Street investors, as well as local and federal government officials, that borrower defaults are rare and that no homeowners have gone into foreclosure as a result of the program, according to investors and public officials.

MD: They write … in direct conflict with the title of their article?

But a Wall Street Journal analysis of tax data in 40 counties in California—by far the biggest market for PACE loans—shows that defaults have jumped over the last year. Roughly 1,100 borrowers have missed two consecutive payments this year through the tax year that ended June 30, compared with 245 over the previous year. That means they are in default, and could potentially have their homes auctioned off by local governments within five years.

MD: That says nothing if the number of traders involved has increased four-fold as well. In all their wisdom, have they increased interest collections accordingly to recover these defaulted trading promises?

The lenders, including Renovate America Inc., Ygrene Energy Fund and Renew Financial Inc., say the overall default rate of less than 2% provided by the Journal’s analysis is in line with the average percentage of people who miss property-tax payments.

MD: “The company” should be seeing instances of defaults instantly. And with a proper MOE process they would be making immediate interest collections of like amount from new traders with a similar propensity to default. It has a negative feedback, self stabilizing, bubble containing effect.

Rocco Fabiano, the chief executive of Ygrene, said in a statement that “Ygrene’s PACE delinquency rate remains far below that of average property tax delinquencies in California.” A spokesman for Renew Financial said property owners in its CaliforniaFIRST PACE program “have similar delinquency and default rates as all other property owners.”

MD: So this is a property tax?

In the PACE program, private companies make the loans and the balances are placed on a homeowner’s property tax bill. Local governments are responsible for collecting the payments and, in the event of a default, potentially seizing the home to recoup the loan amount.

MD: Right… government collecting using their unique tools of force (i.e. by taking the trader’s property … and usually turning it over to the money changers for a song). While private companies get the interest … right? Right out of the money changers playbook isn’t it!

The average PACE loan is about $25,000. But unpaid balances get bigger quickly; they accrue additional interest at the rate of 18% annually. Under California law, homes can be auctioned off in a tax sale in up to five years if the homeowners don’t pay the balance.

MD: 18% annual interest? That suggests that over the term of the average trading promise, nearly one in five will fail to make any repayment at all! Money changers? What’s not to love about that? Nothing like raising interest rates to get people to stop being deadbeats. Note, this is imposed on people who have already committed to their trading promise. Not to new ones making new trading promises. This is exactly the wrong way for an MOE process to operate!

“For us to be the heavy hand and make [borrowers] go through the tax sale process is onerous on us,” says Jon Christensen, the tax collector in Riverside County, where 227 PACE borrowers are in default.

MD: Who designed this system? They should be hanged. If we had a proper MOE process, this nonsense wouldn’t even get started … there would be no need for it!

Wall Street is hungry for bonds made from PACE loans. In July, asset managers and pension funds piled into a $205 million deal from the largest PACE lender, Renovate America. It was the company’s 11th securitization since its 2008 founding.

Investors are attracted to the bonds’ relatively high yield of about 4% and the loans’ priority structure. If a borrower defaults, PACE lenders are paid back before mortgage lenders. The deals have received high marks from rating agencies, which have said the program is too new to predict future defaults.

Still, some investors are getting nervous.

“If we can’t get more data, it’s going to limit our ability to take the risk,” says Dave Goodson, the head of securitized products at Voya Financial Inc., noting that monthly updates on the PACE bond deal he has invested in don’t include default rates. Mr. Goodson said he has shared his concern about lack of delinquency data in the PACE program to lenders.

MD: Take what risk? The money changers “never” take a risk.

Indeed, such performance data are hard to come by. It is up to local tax collectors to track default rates. “No one is even collecting all the data,” said John Rao, an attorney with the nonprofit National Consumer Law Center.

MD: Such performance data hard to come by? With a proper MOE process it is totally transparent. Anyone can view it … in real time!

The Journal analyzed data from the California Association of County Treasurers and Tax Collectors, which collected the information from local tax collectors and from counties. The association is advocating state legislation to increase consumer protections in the PACE program.

MD: Boy … talk about checking the barn door months after the horse has left!

The data, which only offer a limited view of overall PACE loan performance, show that the average default rate has climbed to 1.6% from 0.9% last year.

MD: If it is just 1.6%, how do they justify charging 18% interest. In a proper MOE process, interest collections are exactly equal to defaults experienced. They are made by new traders … not existing traders. It is a natural negative feedback system … resisting new traders when existing traders are experiencing problems. Throw the penalty on existing traders and you make their plight worse … plus you don’t restrict new traders that just inflates the bubble. How stupid can they be?

The default rate is lower than the average credit card default rate of roughly 3.5%, and higher than the first mortgage default rate of .6%, according to the S&P Dow Jones Indices.

But the PACE default rate doesn’t capture borrowers whose missed payments are covered by mortgage escrow accounts, which appears to be a common occurrence, according to borrowers, banks, real estate agents and attorneys.

MD: In other words, the instrumentation sucks … by design I’m sure.

Last year, California tax collectors reported that roughly 1.1% of homeowners missed property-tax payments, according to the tax collectors association.

MD: How can they miss property tax-payments when they are required by the government to escrow those payments? It can only be because the money changers are grabbing their tribute first.

MD: Mises and other thoroughly confused intellectuals and their acolytes spend most of their time studying why traders trade … why they make the trading decisions and choices they do. They then impose what they think they learn on the Medium of Exchange process. Ithaca Hours and Baltimore Green BNote are two examples of how the MOE process (money), being totally misunderstood, is misapplied as a social tool. It looks like this article is in that same class since “Buying Local” shouldn’t be a goal in the first place. It assumes an input into a trader’s decision he may have no intention of employing. Let’s see what Money Delusions this reveals.

Saturday, August 12, 2017

The residents of my bucolic town of Duvall, situated in the foothills of the Cascade Mountains, love local food. Townsfolk grow a variety of fruits and vegetables, raise cows and sheep, brew beer, and even distill liquor. Farm-to-table gatherings are popular in the area, and signs posted around town urge citizens to “buy local.”

My neighbors are jumping on the bandwagon of a growing trend to urge customers to “go local” in order to keep money in the community and/or reduce “food miles” that supposedly harm the environment.

So imagine my surprise when I encountered a sign promoting a “local” food
product in the bakery aisle of our town’s Safeway (a corporate grocery chain). Was the delicious item a blueberry tart from the local “U-Pick” farm down the road? No! It was a single-serving chocolate cream pie topped with coconut shavings

How fantastic! My neighbors must now be setting up cocoa bean farms and planting palm trees.

MD: And as this shows, all these new rules and concepts just enable new scams, delusions, and cons. Why not just leave things alone!

I quickly inquired on the town’s social media discussion board regarding the whereabouts of these cocoa and coconut farms, only to be told that I was being silly; those foodstuffs do not grow well in the cool, damp climate of western Washington. “So why is this luscious pie labeled local?” I retorted quizzically. Well, the answer was simple: It was baked locally.

MD: And the answer was perfectly valid … because “local” cannot be defined. That’s why we should rely on principles … not laws. That’s why we have 40,000+ new laws each year as the try to squeeze this “wet bar of soap”.

275 Miles Away

Well, then! My next task became to discover the whereabouts of this superb bakery. I figured I could walk over to the establishment and compliment the owners for successfully satisfying my taste buds. Upon investigating the label, however, I was surprised to find out that it was made in Airway Heights, Washington. I had never heard of Airway Heights. Further research indicated that it was near Spokane, WA, just a short 275 miles east of my town.

Wait a minute?! How can something that is roughly a five-hour drive away be “local?” How could we be “keeping money in the local community” if the likelihood of anybody from Airway Heights shopping in Duvall on any given day is close to zero?

MD: There are at least two issues here. Here the article implicitly states one … that “local” means “local trade”. An ancillary one is “local trade” means “local money”. Neither assumption is valid or necessary … or even desirable. This is the work of deluded busybodies.

How can something that is roughly a five-hour drive away be “local?”

Further queries led me to discover that Safeway labels any product made and sold in Washington as “local.” A pie baked just 25 miles further east in Idaho, a mere addition of 30 minutes on a five-hour drive, would not get the “local” label.

MD: Hmmm. Obviously we need another law … one that nails down the precise meaning of “local”. Enter law 40,001 … stage left.

But what about Vancouver, British Columbia? That Canadian city is less than half the distance away (at 130 miles) even though it is in some far-flung “foreign” country. A slab of back bacon from Vancouver purchased in our town’s Safeway would not get the “local” seal of approval, whereas the farther-flung Airway Heights pie would. None of this makes any sense!

MD: It makes perfect sense in the face of “nonsense”. If you want a constraint, state it in the form of a principle. Can you imagine the number of definitions and laws the simple principle of the “golden rule” implies? Hint: Infinite!

If you are as confounded as I was, then you might be suffering from the geographic confusion that comes naturally (and often gluten-free) with the “locavore” movement. Fortunately, basic economic logic provides an effective antidote to this intellectual malady. In essence, economics informs us that “home” is really wherever you want it to be.

MD: And in typical “economics” fashion, it informs you of nothing!

Is Anything Really “Local?”

The operative question is whether any product is truly “local”? If you are familiar with Leonard Read’s famous I, Pencil, then you won’t be surprised to find out that even the simplest things (e.g., pencils) are made from materials and labor all over the world.

MD: How about a cranberry grown in an indigenous cranberry bog? You can get close … but no cigar.

As for my pie, it turns out that Airway Heights, like Duvall, also lacks the cocoa and coconut farms to make the product’s content geographically local. These ingredients most likely come from Africa and/or Southeast Asia, by way of processing plants in Central America. But what about the labor? Granted, we could buy the ingredients from elsewhere and assemble them with “neighborly hands,” making it “local” labor, but does that even matter?

MD: What problem are you trying to solve in the first place?

The only truly “local” thing I could eat here would be the mushrooms that pop up in our backyard.

MD: Oh really? That’s the only food indigenous to your locality? I find that truly hard to believe … like impossible. But here we have an article trying to exercise some kind of authority … and violating its own principles … if any principle can be implicitly extracted from it. So far no “explicit” principle has been put forth.

Consider a food product that has ten ingredients and requires a baker. All ten ingredients come from some “non-local” source (perhaps 400 miles away). However, the pie is baked in ovens just down the street. The baker is a local fellow and we would guess he would spend his profits locally, or so we hope.

Now, consider a pie baked in Idaho by a “non-local” pastry chef, using wheat and milk produced in Duvall, with Duvallian hands. Here we have a situation of “local labor” providing two of the ten ingredients even though the fruits (or grains and dairy products) of their labor were shipped off to Idaho for final assembly. If we refused to buy this delicious tort because it wasn’t baked locally, we would not be helping to “buy local” wheat and milk. Those Duvall farmers would have less revenue to spend locally! Eegads, what have we done?!

MD: Below we see again the word “locavore”. Was it defined? Why does it exist? What problem is it trying to solve. What constraint is it using to solve this problem? Is there anything “natural” about it at all? What is the principle involved … and why would we want it to be involved? Inquiring minds want to know.

From the perspective of “locavores,” does it matter what part of a product (including labor) is local, so long as something is local? If we want to ramp up our requirements and demand that the entire product be locally produced – from the material and labor going into producing the ingredients to the baker who does the final assembly – then we best prepare to really limit our choices or go hungry. To be entirely “local,” the citizens of Duvall would need to end their chocolate-coconut pie habits.

But even local foodstuffs such as carrots quickly fall off the list of things to consume “locally” considering that the farm machinery used to plant and harvest crops rely upon metal, gasoline, and labor sourced from far-off lands (perhaps even … gasp … Montana!). I personally figured the only truly “local” thing I could eat here in western Washington would be the mushrooms that pop up in our backyard in the spring and fall. I’m not sure if I want to risk that.

MD: This is so typical of analyzing to death something that has gone off the tracks. Mises and his monks are totally afflicted with this trait.

Local to My Taste Buds

Of course, there are other objections to the “consume local” movement. The issue of “food miles” often fails to take into account the efficiencies of comparative advantage of producing goods elsewhere in the world, not to mention the rapid decrease in transportation costs over time.

If Airway Heights is “more local” than Vancouver, even though the former is farther away, aren’t we merely playing rhetorical games?

Although my town grows great blueberries in the spring, it is cheaper – when all resources are considered – to get them from Chile in the winter. Thanks to modern transportation technology, Chile is more “local” than it used to be.

And as for “keeping money in the local community,” I have tried to convince local farmers and bakers not to buy Toyotas with the “local” dollars I give them, but that contract is just too difficult to enforce. Apparently, they like Toyotas. (I also notice sometimes that the dollars I use were printed in Philadelphia and Denver!)

My point to all the locavores is that “local” is really a state of mind. If Airway Heights is “more local” than Vancouver, even though the former is physically farther than the latter, aren’t we merely playing rhetorical games? Does it matter that the ingredients from my chocolate pie come from Africa?

MD: And so is “nutritional content” local to someone’s state of mind. But the busybodies have forced packagers to include it on their packaging. If this locavore stuff is nonsense … and it is … so are all these packaging requirements and warnings. The same is also true of all the nonsensical safety warnings we “ignore” on a routine basis. They just cost money … and they never work. They are the work of bureaucrats and regulators. They are counterproductive.

It may be nice to support a neighbor you see face-to-face, but the cocoa farmer in Nigeria or baker in Idaho might be just as wonderful folk and deserving of my gains-from-trade. Since I’m not sure exactly, why not assume the best? For me, “local” isn’t so much where something is produced, so long as it is near to my taste buds. Now, who has a fork?

Anthony Gill, Ph.D. is a full professor of political science at the University of Washington, Seattle and author or Rendering unto Caesar: The Catholic Church and the State in Latin America (U of Chicago) and The Political Origins of Religious Liberty(Cambridge). He lives in Duvall, WA and doesn’t really care where his food comes from.

MD: It takes a very advanced society for academics like this to be of value … as it does for opera singers and ballet dancers to be of value. When the inevitable reset comes, we will see these people are truly inept traders. They don’t create anything of value. In fact, they do the opposite … witness the global warning zealots … vividly exposed if you just read the emails.

Definition of money

Money is “an in-process promise to complete a trade over time and space”.

Proof

Examine trade: (1) Negotiation; (2) Promise to deliver; (3) Delivery.

With simple barter exchange (2) and (3) happen simultaneously, on-the-spot. Money enables (2) and (3) to happen over time and space.

Thus money is obviously “an in-process promise to complete a trade over time and space”.

The “proper” MOE process

The “proper” Medium of Exchange (MOE) process, first and foremost “guarantees” perfect balance between supply and demand for money … i.e. zero inflation of the money itself. Since this is the nature of every trade, that is easy.

The process “certifies” (i.e. documents) new trading promises .. transparently for all to see … no anonymity. That creates the money, first as a ledger entry. Later it may be exchanged for cash or currency … and back.

This money then circulates anonymously in trade as the most common object in every simple barter exchange. It loses all identity with the trader creating it. All money in the process is the same, be it record, currency, or coin.

The process then monitors in-process trading promises for performance … transparently. On delivery, the money created is returned and destroyed. On default, that orphaned money is reclaimed immediately when detected through interest collection of like amount.

To do this fairly requires actuarial techniques. The process is very similar to the operation of a Mutual Insurance Fund … but no money is to be made on investment income. There are no reserves … so there is nothing to invest.